Conservation Easements Update: Circuit Split, DOJ Indictment, Biden Administration Proposal, IRS Exam Guidance, Recent Articles

Conservation easements continue to be a hot topic for the federal courts, the executive branch, and scholars. Here are some recent developments:

• The U.S. Court of Appeals for the Sixth Circuit in Oakbrook Land Holdings, LLC v. Commissioner (March 14, 2022) upheld regulation 26 C.F.R. section 1.170A-14(g)(6) relating to when a conversation purposes for an easement is deemed protected in perpetuity even if some external event frustrates the conservation goals, affirming the Tax Court's holding on this point. This creates a circuit split with the Eleventh Circuit, which held in Hewitt v. Commissioner that a portion of the regulation is procedurally invalid under the Administrative Procedure Act. Possible next stop: the Supreme Court of the United States.

• The U.S. Department of Justice announced that a federal grand jury returned a superseding indictment charging seven individuals with federal crimes arising out of fraudulent tax shelters involving conservation easements, including one individual who had been previously charged. The DOJ's press release identifies three of the charged individuals as CPAs and two as licensed appraisers.

• The Biden Administration proposed a limit on the deduction available to partners from certain syndicated conservation transactions in its Budget for Fiscal Year 2023 (see p. 132). As detailed in the related General Explanations document (pp. 56-57), the proposal would "provide that a contribution by a partnership . . . is not treated as a qualified conservation contribution (and thus, the deduction for the contribution is disallowed) if the amount of such contribution exceeds two and a half times the sum of each partner’s relevant basis in such partnership." Certain exceptions apply, including if a three-year holding period requirement is satisfied. As proposed, this limit would be effective for taxable years ending after December 23, 2016 (December 31, 2018 for contributions to preserve a certified historic structure).

•  The Internal Revenue Service has issued a memorandum addressed to IRS employees assigned to syndicated conservation easement examinations. It provides interim guidance updating certain procedures relating to these exams when the statute of limitations period is growing short.

• Amy Blake (Texas Tech) has posted How a New Farm Bill with a Twist on Conservation Easements Can Save the Environment and the Family Farm. Here is the abstract:

Have you ever considered how tax law impacts the environment? It certainly does. A simple, tax-based conservation program enacted in the next farm bill can solve two major issues that are rapidly destroying the environment and the world’s food supply.

The first of these issues is the loss of natural lands due to the rapid outward expansion of urban cities, permanently damaging the environment. Once concrete is poured and skyscrapers are built, the land below that once fostered carbon sequestering plants and soil will never be recovered. Properties that provide natural land, open space, critical habitat, and contribute to the world’s food supply are falling victim to continuous population growth and industrialization around the nation.

The second issue is the federal estate tax inhibiting agricultural landowners from passing their land on to the next generation, resulting in forced land sales. The federal estate tax burden is causing owners of natural land and productive farmland to have no choice but to sell their property, resulting in more land being developed and industrialized. However, it is not too late to shape the future of land conservation on a large scale.

President Biden’s goal of conserving thirty percent of America’s lands and waters by 2030 can be met through the enactment of a new farm bill program with a twist on conservation easements to create a new, voluntary conservation tool that maintains land values and property rights. This proposed conservation program includes innovative tax incentives that better pair the needs of landowners with the goals of the government.

Family farms are becoming an endangered species. This Article proposes a farm bill conservation program that addresses not only land loss and estate tax issues, but also addresses various hardships that are consuming the agricultural industry such as changes in landowner demographics, falling commodity prices, misinformation, and rural economies’ dependence on the agriculture industry. This proposed conservation program should be enacted in the 2023 Farm Bill in order to yield the best results for environmental conservation, food supply, and rural economies.

• Bryan Camp (Texas Tech) has written Lesson From The Tax Court: Penalty Approval In Conservation Easement Cases for TaxProf Blog.

Lloyd Mayer